24% of PRB's coal production is for sale

Friday’s approval of Contura Energy as a potential buyer for three of Blackjewell LLC’s more than 30 bankrupt and locked down coal mines and production facilities may mean more than just hope for about 700 workers who could be back on the job soon.

It also could be the beginning of a paradigm shift for Powder River Basin coal that economists have been predicting for the past decade as the dominance of the nation’s most prolific thermal coal region has been muted by cheap natural gas and the emergence of more renewable energy.

While local and national headlines for the past month have been dominated by the unprecedented implosion of Blackjewel, another large PRB operator’s bankruptcy has been quietly flying under the radar.

Like Blackjewel, which owns the Belle Ayr and Eagle Butte mines in Campbell County, Cloud Peak Energy Corp. also operates a pair of mines in the basin, Antelope and Corero Rojo.

Friday’s go-ahead to accept Contura Energy as the stalking horse bidder for Blackjewel’s Wyoming mines, along with Pax Surface Mine in West Virginia, means all four PRB mines are up for bid and potential auction hearings at the same time.

Together, the four mines represent 24% of the overall production in the Powder River Basin in 2018 and their 1,550 employees make up 33% of the basin’s coal mine workforce.

“This is really pretty extraordinary when you consider that the outcome of this hearing (Friday) is that we now have 24% of coal production in the Powder River Basin that is effectively for sale over the next week,” said Rob Godby, director of the Center for Energy Economics and Public Policy at the University of Wyoming. “In the next seven, eight, nine days you have Antelope, Eagle Butte, Belle Ayr and Cordero all for sale in Wyoming.”

While Contura has agreed to buy the three Blackjewel mines for $20.6 million if a better bid doesn’t come through, there’s been no word yet on how much, if any, interest there has been in Cloud Peak’s assets. The company has until Tuesday to name a stalking horse bidder if there’s going to be one for that bankruptcy.

A stalking horse is an individual or group, usually made up of a company’s debt holders, that agrees to bid and protect the value of the assets. In the case of Blackjewel, it acquired the Wyoming mines from Contura in December 2017 and Contura still holds the mining permits and about $250 million worth of reclamation obligations.

By this time next week, the PRB could look much different than it does now, or could be back to “business as normal, whatever ‘normal’ is for the Powder River Basin anymore,” Godby said.

“There really is no normal anymore,” he said. “The normal in the market has been for 10 years a glide downward. You can’t be sure of anything in the coal market, or any market. But what started in 2010 and has continued is that the trendline for coal is going down.”

The basin’s coal production has dropped 34% since 2010, according to the federal Energy Information Administration. At the same time, PRB coal’s dominance in overall U.S. energy production has sunk from about 50% a decade ago to about 25% now. Last year, more domestic electricity was produced through burning natural gas than coal.

The math involved with those statistics isn’t difficult to understand, Godby said. With so much less coal needed to produce electricity and reduced demand for Wyoming coal, the basin is past due to see some mines close. With Contura already committed to buy and reopen Belle Ayr and Eagle Butte, the future for Cloud Peak’s mines is a big unknown right now.

“This is potentially the beginning of the the long-overdue capacity adjustment for the Powder River Basin,” he said.

The next two weeks will be “very telling” he said, depending on who bids on Cloud Peak’s and Blackjewel’s mines.

“The real question is how long is what we’ve been doing sustainable in current and future market conditions?” Godby added. “Part of the answer is that it’s not sustainable at all, because we have two large (operators) in bankruptcy.”

He used the example of the Powder River Basin as an airport and the mines airplanes. They all may be flying now, but eventually they have to come down. The unknown is whether they’ll have a smooth landing or crash.

“Blackjewel is a perfect example of what would be bad landing,” he said. “That’s the landing you want to avoid. Right now the problem in the PRB is there’s too much capacity. If we don’t reduce it, we’re bound to see more bankruptcies.

“These mines may all fly again, but they will eventually have to land for the last time and we can’t ignore that.”